Mortgages are loans that make it easier for many potential buyers to purchase their dream homes. Unfortunately, some homeowners get into a situation where they cannot repay the loan due to unforeseen circumstances. To prevent borrowers from defaulting on their loans, lenders introduced a process called loan modification.
The term may seem simple, but there are several complexities a borrower needs to know before opting for modifications to their mortgage. This detailed article will enlighten you about loan modification, how it works, and its benefits.
We’ll also tell you why having an attorney by your side can help you set favorable repayment terms that protect you from defaulting.
What Is a Loan Modification? How Does it Work?
In simple words, a loan modification is a process that alters the terms of the existing loan. However, the principal amount remains the same. The changes might involve an extension of the duration of time for repayment, a reduction in the interest rate, a different type of loan, or a combination of all three.
Such changes are usually made when the borrower declares they are unable to repay the original loan. Most successful mortgage modification processes are negotiated under the guidance of a real estate attorney.
One thing to note here is that not everyone qualifies for a loan modification. It is not meant for borrowers who simply want a better interest rate. In such cases, a mortgage refinance may be a better choice.
Any borrower going through a sudden or temporary setback can request loan modification to avoid foreclosure and eviction proceedings.
If you are close to losing your home, a loan modification may be the right option for you and your family. Contact the professional Texas attorneys at Kelly Legal Group today for a free case evaluation.
How Does a Mortgage Modification Work? The Basics Explained
The process of obtaining a mortgage modification incorporates a number of steps. During the procedure, your attorney will work with the lender to change the terms of your original loan contract in order to make repayment more compatible with your current financial situation.
Once the lender agrees to the terms, your legal representative can file the paperwork to ensure the loan is secured with the new terms.
If you are eligible for a government program, your attorney can help determine which program applies to your situation. They’ll then work with the lender to make sure you get the full range of benefits available.
Some popular government-sponsored loan modification programs include:
- Loans insured by the Federal Housing Authority might be eligible for modifications through the agency’s FHA-HAMP program.
- Fannie Mae, a government-sponsored mortgage company, offers a Flex Modification program.
- Military veterans may qualify for mortgage delinquency counseling through the U.S. Department of Veterans Affairs.
Some of the government-sponsored loan modification programs aren’t always available. It would be wise to speak to an expert real estate attorney to discuss which programs you might qualify for and whether they offer any benefits for you.
At Kelly Legal Group, our attorneys can give you a walkthrough of all these programs and help you negotiate the new mortgage terms. We work with your best interest in mind to make sure the new terms suit your ability to make payments.
Call us at (512) 505-0053 for your free case evaluation and to learn more about our real estate law services in Austin, Texas.
The Benefits of a Loan Modification Process
Understanding the benefits of getting a loan modification will help you decide whether or not it is a good option for you. At Kelly Legal Group, we have assisted many clients with mortgage modifications, and we curated a list of benefits. Here are some perks property owners can expect from securing a loan modification.
You Pay Less Each Month
One of the biggest reasons for foreclosure on real property is that the mortgage payment is too large. A loan modification can increase the loan repayment timeline, allowing the borrower to pay less on a monthly basis.
For example: If you have secured a mortgage for ten years, you may be able to extend it to 15 years to repay the entire amount. The extra 60 months will help reduce the monthly amount and offer you more flexibility to repay the loan.
It Helps Protect Your Credit Score
If you file for bankruptcy or default on your home loan, your credit score will plummet. A poor credit score curtails the chances of securing a loan again or causes the interest rates to increase. Luckily, unless loan modification forgives part of your principal balance, it won’t affect your credit score.
When you choose to get a loan modification, you may see an initial drop in your credit score. However, it will not be as nearly as impacted as with foreclosure or bankruptcy.
You Can Save Money with Loan Modification
Most people think that loan modification results in the borrower ending up paying more money in the form of interest. However, it is only sometimes correct! In some cases, the lender agrees to reduce the interest rate while increasing the duration to pay the loan, which means you pay less and get more time to repay.
✍️ Note:
Not everyone can avail of a lower interest rate, and it depends on several factors. It is essential to hire an excellent attorney from a reputed real estate law firm to negotiate with the lender on your behalf. A real estate attorney can prove your inability to repay the mortgage, which increases the chances of getting a reduction in the interest rates.
You Might Stop Home Foreclosure
Home foreclosures are a common occurrence in Austin, Texas. It is one of the worst things that can happen to someone. Losing your home because of the inability to repay the mortgage is something you might be able to avoid by modifying the loan.
It is indispensable to contact an attorney as early as possible to prevent your home from going into foreclosure. The attorney will negotiate with the lender and do everything possible to secure a loan modification and help you keep your house.
You Can Eliminate Recurring Late Fees
Missing one or two monthly installments means attracting a late fee. Every missed payment comes with an extra fee, which reoccurs every month if you keep missing the installments. This fee adds to the loan total and makes the principal amount even bigger, so you end up paying more installments.
With a loan modification, you can eliminate the recurring late fee, as the lender reduces the interest and expands the timeline to repay the loan, so you get added flexibility.
Besides these benefits, there are multiple other perks of getting a loan modification if things aren’t going in your favor.
The Process of Getting a Loan Modification
Loan modifications help make loans more affordable. But it is necessary to follow the right approach, or things may not change. Below we have explained a step-by-step process to get a loan modification in Austin. Texas.
Talk to the Lender
The first step should be talking to your servicer. You’ll probably speak to someone in the “loan modifications” or “loan mitigation” department. Make sure to keep detailed notes of each conversation, such as the new proposed interest rate and payment schedule.
Hire a Real Estate Lawyer
After discussing things with the servicer, you should make an appointment with a real estate attorney to go over the new terms and conditions. The real estate lawyer will tell you if the new conditions are appropriate for your current repaying ability.
Attorneys can also tell you if you are eligible for any government program, as it might help you repay the loan more flexibly. These legal professionals with knowledge of property law can also negotiate with the lender on your behalf to get you better repayment terms.
Be sure to hire Texas real estate attorneys from a business law firm specializing in commercial and residential real estate in order to get the best outcome.
Organize Your Documents
To be reviewed for a loan modification in Austin, TX, you must fill out an application with your loan provider. You might also need to provide information about your assets, income, and debts.
The documentation may include bank statements, tax returns, a recent utility bill, and any other documents related to finances. The more organized you are, the sooner you’ll get an answer from the servicer about your application for loan modifications.
Learn What a Loan Modification Can Do and What It Can’t Do
The main goal of a loan modification is to make it easier for you to repay the mortgage and prevent foreclosure. A modification might extend the term of your loan or lower the interest rate.
You should understand what the modification will offer you in the long run and if it benefits you. Once you have hired a qualified attorney, you can ask them to explain to you what the new terms offer.
Only you can decide whether or not to accept the modification with the new terms. After you agree, the servicer will enforce the terms, such as the new interest rate.
Kelly Legal Group is a team of expert attorneys well-versed in real estate law in Austin, TX. You can talk to us if you are having trouble paying your mortgage and need a reliable legal partner to help you throughout the process of loan modification.
Call us at (512) 505-0053 to learn how we can help and connect with the best Texas real estate lawyers.
The Consequences of Defaulting on Your Mortgage
Defaulting on your mortgage may seem like a way out of your situation. However, it comes with harsh consequences.
Your Credit Score Takes a Hit
It is pretty much guaranteed that if you default on your mortgage, your credit score will take a nosedive. Your debt payment history accounts for 35% of your FICO score.
Foreclosures can stay on your credit score for up to seven years, which means it’ll be hard for you to get another loan, or your interest rates will be high. Renting an apartment and getting utility services will also require higher deposits. However, this might still be a better option for you if you are close to foreclosure or bankruptcy.
It Increases the Tax Bill
In 2007, the government introduced the Mortgage Forgiveness Debt Relief Act, which helped homeowners who lost their houses to foreclosures or short sales to escape a major tax penalty for a loan that was forgiven.
Unfortunately, the act expired at the end of 2013. If you default on your home loan and owe a significant amount to the lender, you might be further taxed.
Alternatives to Loan Modification
A loan modification isn’t the only way out of this situation, and there are some other ways as well you can choose to avoid foreclosure. Here are a few:
You Can Choose Forbearance
If you can’t repay the loan for a short period of time, say a few months, you can ask the servicer for a forbearance. It helps prevent foreclosure risks and gives you some time to get things back on track. Hiring a foreclosure defense attorney is essential when working on a forbearance agreement with your mortgage provider.
👉 More: Actions You Can Take to Stop The Foreclosure Process
You Can Hold a Short Sale
A short sale might help you avoid defaulting on the loan. You can sell your home for the market value, usually less than the mortgage amount, and the lender will take the proceeds.
The remaining balance, the difference between the loan amount and the amount you sold your house for, is written off. A short sale may affect your credit score, but the hit is not as severe as it is in the case of defaulting on a loan.
Make sure to have a short sale attorney on your side to take care of the real estate transactions. Your lawyer can handle the property title and document preparation.
You Can Consider a Refinance
If your servicer isn’t helping you with a loan modification, you can try to get a refinance from another lender. In a refinance, you replace your existing mortgage agreement with a new one. This way, you can save your house from foreclosure and might get better contract terms.
Let Kelly Legal Group Help You with a Loan Modification
Are you considering a loan modification and are looking for legal counsel with extensive experience to help you negotiate terms with the lender? At Kelly Legal Group, we are experts in all residential and commercial real estate matters. A lawyer from our team can provide you with all the legal help you need for a successful loan modification.
From reviewing the contract to handling negotiation to getting a loan modification approved, we take care of all aspects of securing a loan modification while following Texas real estate law. In fact, our expert team of lawyers is knowledgeable about all real estate litigation and can handle all your legal issues.
Call us at (512) 505-0053 to speak to one of our real estate attorneys in Austin, TX when you need any type of legal services related to loan modification or real estate law.
